Fancy a 5% income that's growing at more than the rate of inflation?
United Utilities (LSE: UU) is one of the few remaining utility companies in the FTSE 100 (UKX) and it's long been a favourite of income-seeking investors. It's a simple business to understand, as it provides 7 million customers with water and waste services in the North West of England.
Today, the company issued a trading statement in advance of its AGM. As you would expect with a utility company, progress has been slow but steady.
United said it had been moving up the industry service rankings but, as it admits, from a low base of 21st out of 21 from the year before. Customer complaints are also down by a quarter and it met its 'regulatory leakage target' for the sixth successive year -- which sounds rather disgusting, but which I presume is a good thing.
For those of us in the South East, just emerging from a hosepipe ban, the fact that United's reservoirs are currently more than 90% full is somewhat galling, but not entirely surprising.
United's latest full-year dividend of 32.01 pence is set to be increased by two percentage points over the Retail Prices Index for the next few years. When RPI was more than 5%, such a prospect would have been highly attractive. Now RPI is nearer 2%, the proposed dividend advance is less impressive, but still not to be sniffed at.
United is able to make such dividend promises due to the regulatory structure of the industry, which sees prices set by Ofwat for a five-year period. We're currently in the middle of the 2010-2015 pricing period, and the next price review is set to be announced in 2014.
Here's how United's yield compares to those of the other FTSE 100 utility companies:
Source: Digital Look
While United Utilities is near the bottom of this list, it still offers a higher income than Severn Trent, the only other water utility in the FTSE 100.
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> Stuart does not own any of the shares listed above.